In the industry of nonprofits that relies increasingly more on evaluation and measuring impact to give and secure funding, assessing leadership and structures of nonprofit organizations is a valuable endeavor. Many nonprofit organizations are able to profoundly impact their communities and can become sustainable, through a combination of vision, hard work and a steady source of funding. However, scalability can be stifled without the necessary resources, leadership and structures in place. Many leaders need to devote time, energy and capital to develop their personal capabilities and the organization’s, if more sophisticated business administration practices are not familiar to them. Guidance, assistance, mentorship and education are crucial to cultivating this.
Venture capitalists focus on the skills and background of the entrepreneur as one of the key indicators used in assessing a start-up’s future success. This is not to say that vision and leadership of a nonprofit are ignored in grant making. However, the practice of funding an organization purely based on a written application is one that cannot easily assess the nonprofit’s leadership and its internal capacity. Venture capitalists tend to have rigorous evaluation processes to determine with whom they should invest. Once they fund a company, they expect to hold a position on the company’s board of directors to provide oversight and guidance to the entrepreneur to maximize their gains.
There are challenges to this model, especially when translating it to nonprofit funding, but some of these practices can greatly strengthen an organization in various ways. Social impact funders who wish to invest in nonprofits should consider developing a closer relationship with organizations and supporting their capacity building, both monetarily and personally. If the investor would like to see their funds maximized in the community, becoming an advisor to the nonprofit and supporting the organization’s infrastructure and capabilities is crucial. Once this close relationship is established, the donor will be able to recognize and support the steps that the nonprofit is taking to increase its internal potential and help develop a more sustainable business model that has an even greater impact on the communities it serves.
As an example, over this past year, a fellow Bolz Center for Arts Administration student, Sara Woldt, and I have had the pleasure of consulting with the leaders of a rural Wisconsin nonprofit organization to help them improve their internal capabilities and become stronger leaders who are equipped to handle the organization’s growth. The Wormfarm Institute promotes the interconnection of agriculture and the arts by fostering vital links between people and the land. In the past few years, the organization has become nationally recognized for the economic development and cultural vitality that it brings to Reedsburg, Wisconsin and surrounding communities, receiving grants from the National Endowment for the Arts and ArtPlace. As the Board Chair likes to say, the Wormfarm Institute is a “twenty-year-old start-up” seeing overnight success due to the Executive Director’s and Founders’ exceptional, innovative and clear vision and dedication to the work on a modest budget.
In this time of high growth, the Wormfarm Institute is poised to move from a grant-driven funding model to one with more diverse revenue streams. In order to prepare for these changes, the organization agreed to create systems to manage the organization’s day-to-day finances and facilitate more long-term financial planning. With governance best practices in place and a confident Executive Director that is equipped to organize and understand the organization’s financial position, the Wormfarm Institute can position itself to cultivate funding from more varied sources, retain its passionate and skilled employees and expand its programming.
The focus of our work with Wormfarm has been to help the leaders of the organization build their financial leadership, literacy and capacity. Sara and I held in-depth interviews and assessments with several staff, board members, volunteer bookkeepers and external accountants. We also completed an audit of various materials and financial documents. Upon completion, we summarized the strengths and challenges facing the organization and shared it with the Executive Director, Board Chair and Finance Committee in an organizational summary assessment. Based on the report, Sara and I facilitated a discussion around the most pressing goals and next steps for Wormfarm. The meeting was very reflective and productive, and we agreed to use our expertise to help them develop:
- A better understanding of the past year’s revenues and expenses by program with necessary overhead in a format that is understandable to the Executive Director and Board of Directors
- The financial literacy of the Executive Director that provides her with the vocabulary necessary to more easily communicate with the volunteer Bookkeeper
- Graphic representation of funding sources to assist Board and Executive Director in setting fundraising goals
- A format for forecasting that analyzes previous years’ budgets versus actual income and expenses
- Increased board governance and financial oversight, including preparing a job description for the treasurer, establishing a finance committee that has an outlined charter, and creating an annual calendar of financial and administrative activities
- A dashboard for reporting financials to the Board
- Recommendations for securing a bookkeeper with various options and resources outlined
- An understanding of materials that are need prior to conducting the external audit
- Prioritized recommendations and resources for organizational capacity building based on conversations and the outlined goals
We created extensive program-based budgets, administrative overhead allocation techniques, and budget versus actual projection templates in collaboration with Wormfarm Institute. Additionally, a customized dashboard template was created to communicate and report on the organization’s finances in future board meetings. All of these final deliverables were not only shared with the Executive Director and volunteer Bookkeeper, but also with the Finance Committee and Board Chair, to allow them to take a more invested role in the financial leadership of the organization and better support the Executive Director. This project was a seven-month commitment and required extensive development and scoping, meetings and presenting research to develop solutions that met the organization’s needs.
The staff and board of the Wormfarm Institute were a pleasure to work with. Their decision to open their organization to outside consultants to strengthen their internal capacity should be applauded. The Wormfarm Institute is doing groundbreaking work in creative placemaking, and with greater internal stability, they will be able to have a greater impact on the Wisconsin community and the intersection of arts and agriculture. They are excited and receptive to make the changes we recommended. It is clear that the Executive Director is strengthening her financial management abilities to allow for this renowned work to expand and develop and is already making systematic changes. Similarly, the Board of Director’s support for financial best practices and scheduling an audit for the first time, positions the organization to approach various new donors, generate new revenue streams and grow and expand its recognition.
The Wormfarm Institute’s investment in their Executive Director and Board’s financial capacity is already making them a more attractive organization and is helping them cultivate more diverse revenue streams. The Wormfarm Institute’s willingness to improve upon internal capabilities has been noticed by one of their new funders, a prominent foundation. This funder has developed a close relationship with the organization and is very supportive of the organization’s vision and mission, while recognizing the challenges the organization faces and finding ways to assist those internal needs. Due to the foundation’s vested interest in Wormfarm’s mission, they are recognizing the Executive Director and Board’s work to build their capacity, and specifically devoting funds to help the Wormfarm establish a new leadership position, a Development Director. The funding comes with an expectation that the Wormfarm Institute will reach certain milestones, and uses key metric to assess the impact of the funds. The foundation has an understanding that the results of the Wormfarm Institute’s internal capacity building will take time to achieve and will allow for a sustainable and more reliable organization. In the end, the organization will be able to attract more donors, allowing for the organization to expand it’s programming to reach an even larger community.